The GOP's Deficit Plan: Borrow As You Go

October 27, 2010

Aside from these symbolic changes, Boehner says he will replace the Democrats’ “Paygo” scheme, which once ensured that every program was paid for prior to passage, with “Cutgo,” which would require Congress to cut spending for a program of equal or greater value before approving a new program.

Let me explain what this is all about. "Paygo" was a reform imposed by the 1990 budget agreement that required Congress to offset the cost of any new entitlement program or tax cuts with entitlement cuts or tax hikes. It was a significant factor in the decline of the deficit through the 1990s. Republicans hated it because it required them to offset the cost of tax cuts with either spending cuts or increases in other taxes, thereby making the trade-offs of tax cuts explicit. When they took control of Congress in 2001, Republicans ended the Paygo rule, which allowed them to pass a series of tax cuts along with a Medicare prescription drug benefit without any offsetting measures. The structural deficit exploded.

When Democrats recaptured Congress, they re-imposed pay-go rules, leaving an exception for extension of the Bush tax cuts for income under $250,000. That's one reason why the Affordable Care Act had to be offset with hundreds of billions of dollars in politically-painful Medicare cuts, rather than financed solely through borrowing like the Medicare prescription drug law. Naturally, this made the Affordable Care Act much harder to pass through Congress as well as less popular -- bills that hide their cost pass more quickly and with less complaint than bills that make make explicit who is going to pay for their costs.

Looking ahead to controlling Congress, Republicans again propose to eliminate Paygo, as they did under Bush. But this time they propose to replace it with a different rule, Cutgo, which would require that new spending be offset with spending cuts. That would indeed be an effective way to limit new spending programs. Of course, it would retain the ability to pass tax cuts with no offsets whatsoever. The decision once again reflects the core Republican belief that tax revenues do not need to bear any relationship to expenditures.